CANADIAN MINING PERSPECTIVE: Auto Workers call for probe of Kidd plant closings

The Canadian Auto Workers (CAW) is calling for a federal and provincial probe into the planned closing of the ...





The Canadian Auto Workers (CAW) is calling for a federal and provincial probe into the planned closing of the Kidd copper smelter and zinc plant at Timmins, ON. The owner, Swiss-based Xstrata plc, plans to shut both plants on May 1, 2010, but will continue to operate the Kidd mine and concentrator.

The CAW is not convinced that the closings are necessary. If Xstrata cannot make an economic case for its decision, the union wants the government to force Xstrata to sell the Kidd metallurgical assets.

There is legal precedent for such a move. The Investment Canada Act allows a review of a foreign company's investments to determine whether or not a project has changed from the time of the original application. If a project no longer has a "net benefit" to Canada, the federal industry minister can force the company to remedy the situation or sell the assets. The Ontario Mining Act could be used to withdraw Xstrata's mining rights if the company is no longer treating its ore sufficiently in Canada.

The CAW does not want to see the 670 jobs held by its members disappear should the plants close.

Nor does the Timmins Economic Development Corp. A recent study it conducted put total job loses at more than 4,400 should the Kidd mine close as well. According to its figures there would be 1,162 direct jobs lost, plus the 3,300+ indirect jobs.

Xstrata posted a profit of US$2.8 billion for 2009, down 41% from $4.7 billion for 2008. It has also said it will be paying a dividend of US$0.08 per share as earnings per share fell to $1.05 last year from US$2.77 a year earlier. And the 2008 figures were down from 2007 numbers. Certainly Xstrata is profitable, but not as profitable as it would like to be.

The argument is that if Xstrata can pay dividends, it might better use that money to operate its Kidd metallurgical plants. It could, but its shareholders might object. They have seen their dividends shrink to 8¢ from 18¢ in 2008 and 50¢ in 2007. (Let's see: close to 3 billion shares, at US$0.08 each is over US$230 million. How long would that keep the Kidd smelter and zinc plant going?)

Although many commodity prices are rising, many analysts believe that the base metals sector will buck the trend. That may be why Xstrata wants to get our of copper and zinc processing at Timmins.

Only time will tell if a great opportunity is being lost - for either Xstrata or any other potential owner.


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